Speech: The role of the private sector in developing the EU's policies on Disaster Risk Management
European Commission - SPEECH/14/130 14/02/2014
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[Check Against Delivery]
EU Commissioner for international cooperation, humanitarian aid and crisis response
The role of the private sector in developing the EU's policies on Disaster Risk Management
Speech on Public Private partnerships and DRM
Rotterdam, 10 February 2014
Introduction: the Dutch experience and the increasing trend of disasters
State Secretary von Esch
Ladies and Gentlemen,
It is a great pleasure to have been invited to give a presentation in the Netherlands because, more than any other European country, Holland is a nation whose history and even its national identity have been shaped by disasters.
Flooding and flood prevention are existential issues for the Dutch. The great flood of 1953 is still fresh in the collective memory. And it was this flood that changed thinking on disaster management. People realised that, even though extreme events are rare, they will reoccur. Investments need to be made in disaster risk management and in the case of the Netherlands this resulted in the world-leading Delta Works (Dutch: Deltawerken) system of flood defences.
Effective management of risks is nothing new. But we are living in an increasingly fragile world where global trends such as climate change, urbanisation, population growth and environmental degradation mean that the frequency and intensity of disasters has risen steadily over recent decades. Getting risk management right has never been more urgent.
Developing countries are hardest hit in terms of lives lost. Recently, over 25 million people were affected by droughts in the Horn of Africa and the Sahel. Typhoon Haiyan in the Philippines impacted over 16 million individuals. Developed countries are also vulnerable as Hurricane Sandy and the Japanese earthquake/tsunami reminded us. In Europe natural disasters resulted in 100,000 deaths over the last decade.
And as the world continues to warm up and populations continue to grow these trends are set to continue. It is estimated that the urban population exposed to earthquakes and major storms will more than double by 2050 and reach 1.5 billion people.
I would like to structure my reflection around three issues.
Firstly, what is the economic rationale for disaster management; secondly, I will reflect on how the private sector can best contribute to a successful disaster management policy; thirdly, I will look at what the European Commission can do to take this agenda forward.
The economic case for investing in DRM
Disasters result in human loss and suffering but can also cause massive economic damage. This may be obvious for the Netherlands - where some 70% of economic output is generated in areas that are below sea-level – but the fact is that these losses are already massive and they are increasing. A recent World Bank report concluded that the cost of disasters has quadrupled over the last 30 years – from an annual average of around a year in the 1980's to annual losses of some US$ 200 billion today.
We are also witnessing a worrying trend in Europe where average annual losses have risen from €9 billion in the 1980s to more than €13 billion in the 2000s. One single event, the 2013 flooding in central Europe is estimated to have cost €13.5 billion. These floods were the most expensive natural disaster in Germany's history.
The physical impact of a disaster is localised but we have seen that the economic shock waves can ripple out to economies and businesses on the other side of the world due to damage to energy distribution, loss of markets and disruptions of supply chains.
In 2011 the flooding in Thailand resulted in a 9% drop in the Thai GDP. It also disrupted the global production of a host of high-tech manufacturers. Producers such as Western Digital were particularly hard hit and this matters because Western Digital produces 1/3 of the world’s Hard Disk Drives and sells to major computer manufacturers like Acer, Dell, and Hewlett-Packard. The flooding in Thailand resulted in an industry-wide shortage of hard disks.
In the same year, the Japanese earthquake, tsunami and nuclear incident hit economies across Asia and disrupted the manufacture and export of products ranging from satnavs to brakes, paint and computer chips. The economic fallout even hit the UK where workers at Honda's Swindon factory were put on a two-day-week due to a shortage of parts.
These are hard facts and they explain why governments are beginning to conclude that sustainable economic development needs to understand and address the risks from natural and man-made disasters. This is not just a conclusion reached by the ministers responsible for civil protection. The need to build resilience to disasters is increasingly recognised as a priority by minsters of finance. This is hardly surprising since a recent paper from the IMF noted that natural disasters often lead to lower economic growth and a worsening in fiscal and external balances. They can also have a significant impact on poverty and social welfare.
This is why we need to build resilience and foster a culture of disaster risk reduction. These investments make strong economic sense and we know well that the rate of return on every euro is between 4 and 7 times. But the truth is that investments in disaster management are still too low and do not match the increasing risks that we are facing.
Contribution of the private sector to successful disaster management
(1) Public authorities already rely on the private sector expertise to respond to emergencies. All the specialised equipment used by first responders – from flame resistant clothing to high-tech CBRN detection labs – are produced by the private sector. These are niche markets, but as investments in disaster management increase so will the importance of these markets.
Public authorities also need to be actively involved with the manufacturers of these products to ensure that appropriate standards are met and that inter-operability is ensured.
The European Commission does not have any civil protection assets of its own. We help coordinate the work of national response teams. But we do use a framework contract with a private company to organise the transport and logistics related to the delivery of assistance. This is how our support for Japan was organised during the 2011 emergency. And at the end of last year this framework contract was used to transport assistance from NGOs to the Central African Republic.
The private sector can also provide invaluable and innovate support when humanitarian assistance is needed. The World Food Programme has providing beneficiaries with pre-paid credit cards can be a more efficient way of managing the distribution of aid while at the same time maximising the dignity of the beneficiaries.
(2) Beyond response capacities, the private sector can provide valuable tools for disaster risk management. This is particularly the case for the insurance and re-insurance industries which are, when you think about it, all about managing risks.
Last year the Commission launched a Green Paper to start a reflection on how these industries could better help us manage the risks associated with natural disasters. The response was overwhelming with over 70 individual submissions. Insurance experts certainly realise that we live in a world where risks are increasing and they see that this is a challenge for the industry (faced with increasing pay outs) as well as an opportunity (more risk can lead to more business).
We will shortly be publishing a summary of the responses to the Green Paper. But a number of important themes have already emerged.
First, a well-functioning disaster risk insurance system can allow quick pay-outs whenever disaster strikes so that damages can be repaired and livelihoods restored. Without insurance the state can often become the last resort for emergency payments – a situation which undermines public finances (which are already fully strained at a time of austerity). Unfortunately there is a long way to go in Europe since the take up rates for disaster insurance are low: only 30% of disaster losses are actually insured against.
Second, well-designed insurance policies can also work as a market based instrument to discourage risky behaviour and mainstream disaster proofing in economic and financial decisions. Insurance can contribute to a shift towards a culture of risk awareness through:
Third, insurance can contribute to development policy by helping countries that are particularly vulnerable to disasters to effectively "hedge" against the risk of disasters.
(3) Public authorities can also work with the private sector to develop key technologies, and improve research on disasters as well as disaster risk management strategies and actions.
There is an increasing need for innovative technologies and instruments to support disaster management. These range from early warning systems to technological developments such as risk-modelling and the development of new materials for resilient construction.
Investing in disaster risk reduction saves lives and minimises economic losses. But these investments can also bring economic opportunities. Let me return to the example of the Dutch who are, through necessity, world leaders in water management. As the climate changes, cities across the world are waking up to the threat that they are facing and are turning to the Dutch for advice. Dutch water-management experts are currently providing expertise all over the world, from New Orleans, to St. Petersburg and Jakarta.
Investing in disaster management is also a driver of innovation. The radar images from the European Earth observation satellites mean that the Dutch Directorate-General for Public Works and Water Management (Rijkswaterstaat) can check the integrity of the dykes remotely and with millimetre accuracy. Dutch companies have developed new technologies such as "intelligent" geotextiles that can provide early warning of deformations in soil structures. These are cutting edge technologies and services that the world will increasingly need. And as a happy side effect they give a major boost to Dutch economic competitiveness.
What applies to Holland and water management applies to Europe more generally. Increasing Europe's resilience to crises and disasters will require the development of dedicated technologies and capabilities to support different types of emergency management operations such as firefighting, environmental contamination, marine pollution, development of medical information infrastructures rescue tasks, and disaster recovery processes.
Developing these capacities, making the associated investments and exporting the resulting know-how can act as a means of promoting jobs and growth and open potential 'lead markets' where European firms should look to invest.
Areas for future cooperation with the private sector
Over the past decade, EU cooperation in civil protection and humanitarian aid has evolved by shifting from response towards a more balanced system that also covers preparedness and prevention actions. And as we roll out these policies it is clear that a close collaboration with the private sector will be essential. I am quite sure that this will be a major theme covered by the successor to the Hyogo Framework for Action that we will shortly be negotiating.
A lot of this implementation work will be for the next Commission but I would like to conclude by suggesting five areas where this public-private cooperation could be usefully developed:
First, we need to increase the levels of investment in disaster risk management. The new generation of EU structural funds explicitly open up the possibility of European funding for the development and implementation of risk management plans. It is now up to national authorities to take up this opportunity and incorporate the issues in their national programmes.
Second, we need to have a more structured dialogue between policy makers the industries that have an interest in DRM. Specific "roundtables" exist for other industrial sectors and I can see no reason why something similar should not be set up for the DRM sector.
Such a dialogue could usefully look at the disaster-related CSR activities that many companies are already carrying out (e.g. the big logistics companies) and see if they could be linked into the response plans that we are planning at the national and European levels.
Third, the insurance Green Paper needs to be followed by a specific initiative aimed at the insurance sector. Without pre-empting future political discussions on this question it is clear that issues that could be addressed include: (i) improving the low take-up rate of disaster insurance (ii) moving towards systems with a higher degree of risk based pricing (iii) improving the accuracy and comparability of risk data and risk modelling, and (iv) learning the lessons from all the insurance pilot projects that have taken place in developing countries and finally scaling up the most promising approaches at the national level.
Fourth, we could consider resilience certification for industries that have prepared themselves for disasters. The idea would be similar to eco-labelling and incentives could be introduced by linking certification to reduced insurance premiums.
Finally, there is more that we can do to focus the EU's research tools on improving our knowledge of disasters and developing innovative disaster management technologies.
Let me be clear – we are already doing a lot here. One example is Project MATRIX1 which aims at developing a common framework for risk assessment and analysis. Another is the global earthquake model "GEM" which has been developed to bridge the gap between the increasing vulnerability to earthquakes worldwide and the lack of reliable risk assessment tools and data.
But there is more that can be done and, through its new research Framework Programme Horizon 2020, the EU should look to consolidate existing research and develop DRM as a "lead market" for the EU.
Ladies and Gentlemen,
I have set out the argument that in an increasingly disaster prone world investments in disaster management are necessary for our physical and economic security. These investments pay for themselves many times over and since disaster management is – unfortunately – a booming sector if the EU takes a lead here it could contribute to our economic prosperity.
My mandate as European Commissioner responsible for these issues will shortly be coming to an end. But I am satisfied that the last five years have seen a shift in thinking where we now realise that if we want to make our economies and societies more competitive and sustainable then we need to invest in resilience and risk management. Governments, the private sector and individuals all need that factor risk into our daily lives and long-term decisions.
The better we understand the economics of disaster management the clearer it is that the private sector has central role to play in delivering resilience. I am therefore convinced that developing the relationship with the private sector will be one of the major themes of themes of future thinking on disaster risk management – at the European level and indeed at the global level.
The subject of the conference could not be more topical or more important. I therefore wish you every success with the discussions that follow.
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